Tikit, the information technology services provider to the legal and accountancy professions, saw margins improve in the first half of the year as it continues to peddle more of its own in-house software to clients.
Revenue in the first half of 2012 edged up to £13.4m from £13.3m in the corresponding period of 2011, but adjusted profit before tax grew faster, up 5.5% to £2.4m from £2.3m. Statutory profit before tax was up 8.5% to £1.7m from £1.6m in the first half of 2011.
The group saw an improvement in operating margin to 17.9% from 17.1% a year earlier, as the sales mix changes towards a greater emphasis on Tikit-owned software. Total revenues from in-house software increased 7.5% to £4.3m from £4.0m a year earlier. Tikit-owned software now represents 32.2% of total revenue, up from 30.0% last year, partly reflecting the decision by Lexis-Nexis, the online information provider to the legal and tax profession, to stop using Tikit as a distributor back in May 2011.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Get 6 issues free
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
"The headline numbers don't reflect the real picture because we've had to replace the LexisNexis deal," Chairman Mike McGoun told Sharecast.
The group is seeing encouraging demand for eMarketing and Carpe Diem suites; the former enables marketing and business development teams to deliver professionally branded e-marketing communications, efficiently and effectively, while the latter is a suite of time management products picked up from Saga Group and revitalised.
"The Carpe Diem Enterprise suite represents a big opportunity for us," McGoun said. "It's not just a desktop product, it's available via a mobile device as well and enables professionals to track their activities while on site," he explained.
The only fly in the ointment for the company seems to be the reluctance - or inability - of the small and medium sized legal practices to sign up for new products.
"We're getting lots of positive feedback on the cloud-based products, lots of interest in the subscription service but take-up has not been as fast as we expected given what we see as the clear cost benefits to customers who switch to our service," McGoun expounded.
"A lot of these smaller practices have maybe just one person handling IT [Information technology] in-house, and life would be a lot easier for them if they just switched to our service. We do all the maintenance for them, back-ups and so on," McGoun said.
Unfortunately for Tikit's top-line, it seems that while the top 100 law firms are doing well, the stagnating housing sector in the UK means a lot of the bread and butter stuff for the smaller firms is drying up. A certain element of industry consolidation is inevitable, in McGoun's view, and although on the face of it this would reduce the potential pool of clients, the impression is that bigger firms are more likely to sign up for more of Tikit's services.
North America is probably the major growth target area for the company. Tikit has invested in marketing and sales personnel to attack this market, which has put a bit of a dent in profits, but "we don't need to win much new business to cover the additional costs," McGoun advised.
Once Tikit gets its foot in the door with one company, it seeks to enjoy a domino effect in the rest of the industry.
"It's a very tight knit community, even on a global basis," Chief Executive David Lumsden explained. "It's not like the legal profession is fighting an IT war. Clients are happy to demonstrate best practice to their rivals," he added.
As such, the IT outsourcing deal signed in the first half with UK firm Clarke Willmott - "the biggest deal we have ever done" according to McGoun - might be a significant "domino" for Tikit to have tipped over.
"The general rule in the legal profession is, 'if it is good enough for Linklater's or whoever, then it is good enough for us'," Lumsden said.
Net cash at the end of June stood at a healthy £6.6m, up from £4.1m. Having "taken a bit of stick" from shareholders a couple of years back for a stingy 5%-or-so interim dividend increase, the board has taken note of its shareholders' wishes and hiked the interim dividend more substantially in recent times; last year the interim divi was bumped up 25% to 2.5p, this year it is up 20% to 3p.
"You can probably pencil in 9p for the full-year pay-out," McGoun let slip. That would represent a penny increase on last year's 8p pay-out.
The shares are lurking some 20p below their 52-week high at 327.5p, up 1.5p on the day.
JH
Buying infrastructure funds - 'cheap is not always cheerful'
The new products and growth sectors driving America’s long-term winners
